Sectors

Italy: Breathing space

The extreme risk threatening the liquidity of the Italian sovereign has now receded, following the ECB's announcement of its OMT programme to purchase public debt. But Italy is sliding into recession, deferring the point at which its debt profile goes into reverse. Assuming that expectations stabilise and that the environment becomes slightly more upbeat, investment could pick up once more next year, in line with a recovery in exports. But the risk of a return to the bad old days is still real as hard-to-call elections loom.

2012 will be marked by a return of the political, namely European Union institutions more focused on dissipating uncertainty, but domestic politics marked by the risk of inactivity or even a return to the past.

The new drop in GDP in the second quarter (0.9% q/q, after a drop of 0.8% in Q1 2012), the fourth consecutive quarterly fall, was in line with our forecasts and puts the Italian economy into its worst recession since that of 2009. GDP is back at its 2001 level and has wiped out the results of a decade of growth and membership of the European Monetary Union. Per capita income performed even worse, falling back to the 1997 level.

Italy: contribution to GDP growth

Our scenario is based on the gradual lifting of uncertainty about the future of the eurozone which would limit the slowdown in foreign demand and contribute to the slow recovery in the productivity and competitiveness cycles, ultimately leading to the revival of the investment accelerator mechanism.